Emergent Research

EMERGENT RESEARCH is focused on better understanding the small business sector of the US and global economy.

Authors

The authors are Steve King and Carolyn Ockels. Steve and Carolyn are partners at Emergent Research and Senior Fellows at the Society for New Communications Research. Carolyn is leading the coworking study and Steve is a member of the project team.

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Emergent Research works with corporate, government and non-profit clients. When we reference organizations that have provided us funding in the last year we will note it.
If we mention a product or service that we received for free or other considerations, we will note it.

Of those planning to become self-employed, 18% say they intend to make the move in the next year and 28% say they will do so in 3 years.

The study also surveyed people who are currently self-employed.

They found that 90 percent of the self-employed said they enjoyed being their own boss.

They also found over half said they made more working for themselves than in their prior jobs.

In terms of challenges, about half of the self-employed reported having experienced irregular income and 7 in 10 said it's harder to get a mortgage when you're self-employed (the bank that did the study provides a special mortgage for the self-employed).

Regular readers will notice these findings are similar to pretty much all of the studies on the self-employed.

This includes the finding on the percentage of Brits planning to become self-employed. It's similar to our study results (and other study results) on U.S. workers.

At this point you'd almost have to live in a cave to not be aware of the trend towards increased self-employment. And while that may be an overstatement, you certainly wouldn't be reading this blog unless you're aware of it.

So we won't bother covering the report in any detail, except to point out 3 of its charts.

These charts also don't contain anything new.

But they point out yet again some important data that isn't necessarily widely known or accepted. I say yet again the because the findings below echo pretty much all studies on the self-employed.

The first is the self-employed are, on average, more satisfied with work than traditional employees are.

The CIPD chart below even breaks it down into different kinds of self-employed, all of which are more satisfied than traditional employees (click on the chart to enlarge).

The second chart shows the self-employed score better on a series of well-being questions than traditional employees do.

The third chart shows the self-employed have more positive and less negative views towards their work than traditional employees do.

Regular readers knowwe've been reporting on data like this for over a decade. We've also long reported on the downsides of being self-employed, including the people exploited by the dark side of self-employment.

49 percent of contract workers have income that varies from month to month or seasonally.

65 percent of contract workers are male and 62 percent are under 45.

66 percent of part-time workers prefer that kind of schedule.

56 percent of workers received a raise in the past year.

84 percent of workers are not worried that they will lose their job in the next year.

54 percent of workers think it would be difficult to relocate for a better job.

Overall the survey results are consistent with the growing number of other gig economy surveys.

The major exception is this survey found that 65% of contract workers are male. This is substantially higher than pretty much every other gig economy survey, which find close to a even split between male and female gig workers.

This is likely due to how they asked their contract worker question. They asked:

Thinking about your work arrangement, are you a contract worker, that is, someone who has been hired to work on a specific project or for a fixed period of time?

This question eliminates several gig/independent worker segments that tend to skew female. For example, Etsy sellers would not be included, nor would care givers, nor would a variety of others who are self-employed/freelancers.

There's also a large margin of error associated with their contract worker data. They surveyed roughly 1200 Americas of which roughly 800 said they were "workers". Of this 800, 20% said they were contract workers. This means their contract worker data is based on only 160 respondents. This results in a margin of error of almost +- 8% on their contract worker responses.

So when they say 65% of contract workers are male, they're really saying somewhere between 57% and 73% of contract workers are likely male.

So as with all surveys, you have dig into the methodology to fully understand the results.

First, NPR covering contract work in-depth is a clear signal that the gig economy is large and growing is now widely accepted. This was not true even as recently as 2-3 years ago.

NPR's series also presents both the good and bad sides of the gig economy in a balanced manner. This too is relatively new.

In the past, most gig economy press coverage was either very positive or very negative - and most stories were negative. NPR's coverage shows that there is a better mainstream understanding of the pluses and minuses of gig work.

The book is written by the well-known and highly respected small business expert Elaine Pofeldt. She explains how to identify, launch and grow a single person business that can generate $1 million or more in revenue.

The book is based on hundreds of interviews Elaine has conducted with successful solopreneurs. Because of this, it's filled with practical advice from those who have accomplished the challenging task of reaching $1 million in revenue.

We liked the entire book, but our favorite part is Chapter 4 - Making It Happen. This chapter has the nuts and bolts advice about building a successful solopreneur business.

We particularly liked the section Experiment and Revise (page 113). Being able and willing to adapt, adjust and pivot is almost always a prerequisite to business success. This section nicely and usefully lays out how several successful solopreneurs did this.

We also found the section on Useful Resources to be very helpful. It's a one stop shop of the tools and hacks that can be used to automate work and business processes.

The value of automation is stressed throughout the book (you simply can’t build a large solopreneur business without using automation tools) and this section provides a list of the tools to make this happen.

The Million-Dollar One-Person Business is clearly aspirational. As the book points out, there were only about 36,000 single person businesses in the U.S. with a million or more in revenue in 2015.

But this book is not just for those who want to reach $1 million in revenues.

Anyone who wants to build a high income solo business will find the information in this book extremely valuable. And a growing number of Americans are building high income solo businesses.

As the chart below shows, over 3 million American solopreneurs reported earning more than $100k in 2017. This is up from just a bit over 2 million in 2011.

So if you plan on building a $1 million solo business, this is the book for you.

But it's also the book for you if your goal is simply to build a successful solopreneur business of any size. Especially if you want a business that "lets you work the way you want and have the life you want."

January 02, 2018

The new tax law contains a major benefit for many freelancers. It allows them to deduct 20% of their revenue from their taxable income.

This is the "pass-through" provision. It provides this deduction to sole proprietors, LLCs and and other entities that pass-through their business income to their personal taxes.

There are some caveats. There are limits to who can take this deduction and who can and can't will be unclear until the final IRS regulations are issued. This deduction also phases out starting at $157,500 of individual income and $315,000 of income for couples filing jointly.

But most freelancers who make less than these phase out levels will likely be able to take this deduction.

But in the end the Republicans decided to greatly broaden who would get this deduction.

This deduction, coupled with new, lower tax rates means most freelancers should pay less in Federal taxes in 2018 than they would have under the former tax code.

While the tax code changes are good news for freelancers, the bill also repeals Obamacare's individual mandate. This is not good news.

The current administration seems determined to undermine Obamacare, even though they don't have an alternative. The repeal of the individual mandate will make health insurance more expensive and harder to get for those outside of traditional corporate insurance plans - meaning freelancers and the self-employed.

Older freelancers and those earning relatively low incomes will likely be hurt the most.

We'll also see an increase in health insurance "job lock" as people choose to stay with traditional jobs so they're covered under corporate health plans. This will be especially true for older Americans.

Because of the complexity of the new legislation, we urge freelancers to get help with their taxes in 2018. The leading tax software providers will be a good source of information as well as accountants and tax lawyers.

As for health insurance, all we can offer is the hope that congress will fix the mess they are creating by undermining Obamacare and the health insurance markets.

"the growing adoption of artificial intelligence in the workplace and the expansion of the workforce to include both on- and off-balance-sheet talent."

As their chart below shows (click to enlarge), they see the future workforce being made up of four types of workers.

More interesting is their view about how the relationship between corporations and off-balance sheet workers is going to evolve.

They see corporations hiring two broad types of independent workers. One group - the transactional remote worker - is hired for short term assignments, often through an app or some 3rd party platform. Think hiring people via Amazon Turk to categorize pictures, etc.

The other group - outside contractors - will increasingly work on hybrid teams with traditional employees.

These outside contractors will also tend to stay connected with their client organizations for longer periods of time. Key quote:

As the alternative worker shifts to more rapidly evolving work, the way that work is done is likely to change, moving from short-term transactional remote worker to longer-term relationships that help to accelerate learning and performance improvement.

New York, not surprisingly, has the largest total number of non-employer businesses.

Non-employer statistics are often used as a proxy for self-employment.

This is because a "non-employer businesses" is defined by the U.S. Census Bureau as "one that has no paid employees, has annual business receipts of $1,000 or more ($1 or more in the construction industries), and is subject to federal income taxes."

In other words, non-employers only have an owner. The data comes from IRS tax files and includes full and part-time businesses. About about three-quarters of all U.S. businesses are non-employers.

For a variety of reasons too wonky to go into here, the non-employer stats are an imperfect self-employment proxy (see the U.S. Census non-employer methodology description for more detail). But we consider this data to be a directionally correct measure of self-employment, both in terms of growth and overall size.

You may ask how non-employer data differs from BLS self-employment data.

The quick answer is the non-employer data comes from IRS data, while self-employment data comes from the BLS's monthly current population survey. This means the two data sets aren't really comparable. See this article for more details.

We started tracking the non-employer data back in 2006. It was the dataset that first alerted us to the growth of the gig economy.

Field service is another industry with lots of on-demand gig workers. Platforms like Field Nation, Work Market, OnForce (recently acquired by Work Market) and others claim to collectively have over 600,000 independent field service technicians working via their sites.

“This bill leaves too many small businesses behind. We are concerned that the pass-through provision does not help most small businesses."

The "pass-through" business income rate applies to income from entities like like S-corporations and limited-liability companies (LLCs) that do not pay their own taxes, but pass their income through to their owners, who then pay tax on that income on their individual income tax returns.

The proposed 25% pass-through rate is substantially lower than the 39.6% top marginal rate for individuals.

The NFIB estimates only about 15% of small businesses will be able to make use of the 25% pass-through tax rate reduction provision in the plan.

Under this bill, to get above the 25% marginal rate you need to make more than $200,000 if you are single or more than $260,000 if you are married. This is the level at which the 35% marginal tax rate kicks in for individuals.

We tend to think many will get around them, but it will depend on the bill's final language. But they will stop some high earning small businesses from using the pass-through rate.

Adding in the impact of the guard rails, it seems to us only around 7%-8% of small business owners will benefit from the new pass-through rate.

So who would be the winners?

The quick answer is small business owners who make a lot of money and can get around the guard rails. Some examples are:

Owners of very profitable hedge funds, PE firms and real estate development firms: The owners of these firms are often wealthy and make lots of money. This plan cuts their taxes by a substantial amount. interestingly, the guard rails don't apply to these types of firms.

High earning professional services firm owners like doctors, lawyers and high end consultants who can get around the guard rails: While many of these firms will be blocked by the guard rails, it seems likely some will figure out how to get around them.

High earning owners of traditional small businesses that are organized as pass through entities: Again, if the owner is in the 35% or 39.6% marginal tax bracket they should see a tax reduction on their business income.

The vast majority of freelancers and other independent workers also aren't going to benefit. Based on what we've seen so far, few if any traditional freelancers and independent contractors will be able to take advantage of the pass-through provision, even if they make a lot money.

This is because the guard rails are specifically designed to stop people who sell their labor from benefiting. Also, most freelancers aren't in the higher marginal tax brackets.

So we agree with the NFIB that the pass-through provisions of this bill does not benefit most small businesses.

We have several other problems with this bill that are not small business related.

But since this is a small business blog, we'll keep the focus of this post on the direct impact on small businesses and independent workers.

The NFIB is hoping to get Congress to change the plan in ways that will benefit main street small businesses. Their press release says:

We will work with Chairman Brady to make the necessary corrections so that the benefits of tax reform extend to all small businesses.

We're confident many will point out that most small businesses and few, if any, freelancers/gig workers will benefit from this bill.

We're also confident there will a lot noise about the big winners being rich owners of Wall Street financial firms and rich real estate developers.

October 31, 2017

Ardent Partners recently released their 2017-2018 State of the Contingent Workforce Management report. Ardent Partners is an analyst firm focused on corporate procurement and supply chains.

The report is targeted at procurement and HR professionals who manage contingent workforce programs at larger organizations. This is the 5th year of this study on the use of non-employee talent by corporations.

The lead finding of the study is that roughly 40% of today’s total, corporate workforce is considered contingent, including temporary labor, professional services, independent contractors and on-demand workers.

But what we found most interesting is the list of the top contingent workforce management challenges.

As the report chart below shows, the desire to be more agile and the need to find, engage and source talent are the top challenges.

The resulting corporate "need for speed" means that companies have to be able to quickly staff up and down, often with hard to find talent. These needs have reached the point where corporations have no choice but to increase their use of contingent talent.

Also interesting is that reducing cost has fallen to 5th on the challenges list. Four or five years ago, it would have been first.

The reason is contingent workers at corporations no longer just do low level or low skill work. Key quote from the report on the growing strategic role contingent workers play:

It is important to note that these are not augmentative, supplemental workers, as today’s non-employee workforce plays a critical role in how mission-critical work is handled, addressed, managed, and completed.

Because contingent talent is involved in mission-critical work, cost is less of an issue.

This also explains why the need to find, engage and source talent is number 2 on the challenges list. If you're in need of mission-critical talent, how you find and engage that talent becomes much more important.

BTW, this is not to say cost isn't an issue. But what is happening is contingent labor is bifurcating into two types. For mission-critical talent, cost is not a key issue. For non mission-critical talent, cost remains an important issue.

Ardent is forecasting continued growth for the contingent workforce. They are also recommending corporations should embrace contingent talent and see it as part of their broader total talent pool. Again from the report:

Today’s total talent pool consists of a variety of skillsets: independent contractors, freelancers, professional services, “gig” workers, robotics, and, of course, traditional/permanent workers. A perfect alignment between an open job/project and the internal or external skills within the enterprise talent pool is the ideal way to address work.

This approach to talent is clearly emerging, both in large corporations and small businesses.